Bohmer's Bavarian Bets

02/18/2005 12:00 am EST


Heiko Bohmer

Editor, Privatfinanz-Letter and Stock Day Report (Germany)

Heiko Bohmer, from his home in Cologne, is a leading financial editor focused on the German markets. Here, he offers his favorite German stocks, focusing primarily on those that are readily available to US investors on domestic exchanges.

"Germany is the sixth-biggest economy in the world, with 82 million people. I consider the stock market to be undervalued, with a p/e ratio that is 20% to 25% below that of the US. The German market offers well-known, worldwide brands, and Germany is the biggest economic power in the fast-growing European Union. Last year, domestic demand rose for the first time in two years. We anticipate that foreign investment demand in 2005 will be high, as tax reforms are implemented and labor markets stabilize. Indeed, the ‘investment pros’ are already here as US equity funds are increasingly investing in Germany.

"Adidas-Salomon (ADDDY Other OTC) is a well-known sports brand, with a large percentage of its sales in the US, including Adidas, Salomon, and TaylorMade Golf. The company shows increasing shareholder returns and strong operational performance to drive continued capital gains. Further, the company plans to utilize upcoming events such as the 2006 FIFA World Soccer Cup (which will be held in Germany) to create excitement around the brand. FIFA and Adidas have been partners since 1970, making their partnership one of the longest and most successful in modern sports marketing history. This long-term strategic commitment to the World Cup ensures extensive Adidas presence at the world's most watched sports event through 2014. Additionally, individual players like David Beckham represent their respective clubs wearing state-of-the-art Adidas football equipment. The firm also plans to launch ‘Adidas by Stella McCartney,’ which will be the first sports performance designer collection for women, targeted at high-end department stores with a focus on US distribution.

"BASF (BF NYSE) is the #1 chemical company worldwide, with a balanced portfolio and a clear long-term strategy. The company has a competitive advantage based on its unique Verbund concept and is continuously improving its cost base through restructuring. It has a strong innovation pipeline and a sound balance sheet and financial strength. The firm is seeing favorable growth rates for major customer industries. The firm is also benefiting from economic development in China. Earnings have grown at a 43% annual rate since 2003 and the stock trades at 12 times 2005 earnings. The stock also offers a dividend yield of 3.7%.

"Deutsche Telekom (DT NYSE) is the biggest German telecom company. As one of the world's leading telecommunications and information technology service providers, Deutsche Telekom is setting international standards. Deutsche Telekom offers millions of private and corporate customers all over the world the entire spectrum of modern information technology and telecommunications services from wireless communications, Internet, and fixed-network to complex IT and telecommunications solutions. As an internationally oriented company, Deutsche Telekom is represented in about 65 countries around the globe, with 16 million customers in the US. The stock also offers a dividend yield of 2.7%.

"Continental (CTTAY Other OTC) is engaged in automobile and truck tires, electronic brake systems, and airbag systems. Earnings growth since 2003 has been 31% a year, yet the stock trades at just 9.7 times 2005 earnings. The company continues to benefit as more parts of each car are highly developed technical components. And finally, while it only trades on the German exchange, we would also suggest that investors able to buy non-US listed stocks look at Porsche (PSEPF Other OTC) the well-known sportscar maker. Over the past calendar year, Porsche has sold more cars in North America than ever before in the history of the company. Cayenne, which was designed for the US market, has been driving growth. Sales for these sporty off-roaders in North America in 2004 were up 40%. At the Detroit Motor Show, the new 911 Carrera Cabriolet just celebrated its world premiere, and the new Boxster was just launched on the North American market, which showed positive impetus to Porsche's core business over the coming year."

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